Michigan State Employees’ Retirement System A Pension and Other Postemployment Benefit Trust Fund of the State of Michigan
Schedule of Employer Allocations and Schedules of Pension and Other
Postemployment Benefit Amounts by Employer
for Fiscal Year Ended September 30, 2018
Prepared by The Office of Retirement Services
P.O. Box 30171 Lansing, MI 48909-7671
517-322-5103800-381-5111
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Table of Contents
Independent Auditor’s Report ........................................................................................................ 3
Schedule of Employer Allocations ................................................................................................. 5
Schedule of Pension Amounts by Employer .................................................................................. 6
Schedule of Other Postemployment Benefit Amounts by Employer .............................................. 8
Notes to the Schedule of Employer Allocations and Schedules of Pension and Other Postemployment Benefit Amounts by Employer ..........................................................10
Doug A. Ringler, CPA, CIA Auditor General
201 N. Washington Square, Sixth Floor • Lansing, Michigan 48913 • Phone: (517) 334-8050 • audgen.michigan.gov
Independent Auditor's Report
Ms. Laurie Hill, Chair State of Michigan Retirement Board Stevens T. Mason Building and Ms. Tricia L. Foster, Director Department of Technology, Management, and Budget Lewis Cass Building and Ms. Kerrie L. Vanden Bosch, Director Office of Retirement Services Stevens T. Mason Building Lansing, Michigan
Dear Ms. Hill, Ms. Foster, and Ms. Vanden Bosch:
Report on the Schedules We have audited the accompanying schedule of employer allocations and the related notes of the Michigan State Employees' Retirement System as of and for the fiscal year ended September 30, 2018. We have also audited the respective totals by employer for the following columns, hereafter referred to as the specified column totals:
September 30, 2018 net pension liability, total deferred outflows of resources, total deferredinflows of resources, and total employer pension expense included in the accompanyingschedule of pension amounts by employer as of and for the fiscal year ended September 30,2018.
September 30, 2018 net OPEB liability, total deferred outflows of resources, total deferredinflows of resources, and total employer OPEB expense included in the accompanyingschedule of other postemployment benefit (OPEB) amounts by employer as of and for thefiscal year ended September 30, 2018.
Management's Responsibility for the Schedules Management is responsible for the preparation and fair presentation of these schedules in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of schedules that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility Our responsibility is to express opinions on the schedule of employer allocations and the specified column totals included in the schedule of pension amounts by employer and the schedule of OPEB amounts by employer based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the schedule of employer allocations and the specified column totals included in the schedule of pension amounts by employer and the schedule of OPEB amounts by employer are free from material misstatement.
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Doug A. Ringler, CPA, CIA Auditor General
Ms. Laurie Hill, Chair Ms. Tricia L. Foster, Director Ms. Kerrie L. Vanden Bosch, Director Page 2
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the schedule of employer allocations and the specified column totals included in the schedule of pension amounts by employer and the schedule of OPEB amounts by employer. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the schedule of employer allocations and the specified column totals included in the schedule of pension amounts by employer and the schedule of OPEB amounts by employer, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the schedule of employer allocations and the specified column totals included in the schedule of pension amounts by employer and the schedule of OPEB amounts by employer in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the schedule of employer allocations and the specified column totals included in the schedule of pension amounts by employer and the schedule of OPEB amounts by employer.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions In our opinion, the schedules referred to in the first paragraph present fairly, in all material respects, the employers' pension and OPEB allocations and the respective employers' specified column totals included in the schedule of pension amounts by employer and the schedule of OPEB amounts by employer for the Michigan State Employees' Retirement System as of and for the fiscal year ended September 30, 2018 in accordance with accounting principles generally accepted in the United States of America.
Other Matter We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the System as of and for the fiscal year ended September 30, 2018, and our report thereon, dated February 5, 2019, expressed an unmodified opinion on those financial statements.
Restriction on Use Our report is intended solely for the information and use of the State of Michigan Retirement Board, the Department of Technology, Management, and Budget, the Office of Retirement Services, and the System's participating employers and their auditors and is not intended to be and should not be used by anyone other than these specified parties.
Sincerely,
Doug Ringler Auditor General September 27, 2019
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Michigan State Employees’ Retirement System Schedule Of Employer Allocations
As Of And For The Fiscal Year Ended September 30, 2018
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Employer Name
Total Required Employer Pension
Contributions
Pension Proportionate
Share
Total Required Employer
OPEB Contributions
OPEB Proportionate
Share
GOVERNMENTAL ACTIVITIES State of Michigan $ 607,612,175 0.929062748 $ 642,254,334 0.9284887022 State Building Authority 66,693 0.000101977 60,813 0.0000879158
BUSINESS TYPE ACTIVITIES Information Technology Fund 30,883,045 0.047221381 33,098,268 0.0478492186 State Lottery Fund 2,846,404 0.004352263 3,044,570 0.0044014482 Liquor Purchase Revolving Fund 1,337,848 0.002045622 1,380,327 0.0019954990 Office Services Revolving Fund 1,344,336 0.002055543 1,403,730 0.0020293316 Correctional Industries Revolving Fund 693,820 0.001060878 704,463 0.0010184219 Motor Transport Fund 474,600 0.000725682 492,002 0.0007112732 Attorney Discipline System 103,715 0.000158584 101,671 0.0001469831 Risk Management Fund 58,137 0.000088893 65,238 0.0000943126
COMPONENT UNITS Michigan State Housing Development Authority 4,237,833 0.006479812 4,449,018 0.0064318172 Michigan Strategic Fund 687,851 0.001051751 721,953 0.0010437074 Michigan Economic Development Corporation 1,218,853 0.001863674 1,226,545 0.0017731812 Michigan Finance Authority 851,709 0.001302297 899,333 0.0013001400 Mackinac Bridge Authority $885,492 0.001353952 972,230 0.0014055253 Mackinac Island State Park Commission 269,700 0.000412381 291,479 0.0004213833 Michigan Education Trust 271,820 0.000415624 273,334 0.0003951514 Land Bank Fast Track Authority 125,722 0.000192233 141,078 0.0002039528 State Bar of Michigan 35,778 0.000054706 139,752 0.0002020352
Total $ 654,005,531 1.000000000 $ 691,720,138 1.0000000000
Employer-level results may not add to System-wide results due to rounding. The accompanying notes are an integral part of this schedule.
Michigan State Employees’ Retirement System Schedule Of Pension Amounts By Employer
As Of And For The Fiscal Year Ended September 30, 2018 Page 1 of 2
Employer-level results may not add to System-wide results due to rounding. The accompanying notes are an integral part of this schedule. 6 of 19
Deferred Outflows of Resources
Employer Name September 30, 2018 Net Pension Liability
Differences Between
Expected and Actual
Experience
Net Difference Between Projected
and Actual Investment Earnings on Pension Plan Investments
Changes of Assumptions
Changes in Proportion and
Differences Between Employer Pension Contributions and
Proportionate Share of Contributions
Total Deferred Outflows of Resources
GOVERNMENTAL ACTIVITIES State Of Michigan $ 5,617,936,386 $ - $ - $ - $ - $ - State Building Authority 616,641 - - - - -
BUSINESS TYPE ACTIVITIES Information Technology Fund 285,542,303 - - - - - State Lottery Fund 26,317,640 - - - - - Liquor Purchase Revolving Fund 12,369,643 - - - - - Office Services Revolving Fund 12,429,633 - - - - - Correctional Industries Revolving Fund 6,415,006 - - - - - Motor Transport Fund 4,388,116 - - - - - Attorney Discipline System 958,942 - - - - - Risk Management Fund 537,527 - - - - -
COMPONENT UNITS Michigan State Housing Development Authority 39,182,681 - - - - - Michigan Strategic Fund 6,359,819 - - - - - Michigan Economic Development Corporation 11,269,422 - - - - - Michigan Finance Authority 7,874,841 - - - - - Mackinac Bridge Authority 8,187,194 - - - - - Mackinac Island State Park Commission 2,493,622 - - - - - Michigan Education Trust 2,513,229 - - - - - Land Bank Fast Track Authority 1,162,412 - - - - - State Bar Of Michigan 330,798 - - - - - Total $ $6,046,885,855 $ - $ - $ - $ - $ -
Michigan State Employees’ Retirement System Schedule Of Pension Amounts By Employer
As Of And For The Fiscal Year Ended September 30, 2018 Page 2 of 2
Employer-level results may not add to System-wide results due to rounding. The accompanying notes are an integral part of this schedule. 7 of 19
Deferred Inflows of Resources Pension Expense
Differences Between Expected
and Actual Experience
Net Difference Between
Projected and Actual Investment Earnings
on Pension Plan Investments
Changes of Assumptions
Changes in Proportion and
Differences Between
Employer Pension Contributions and
Proportionate Share
of Contributions
Total Deferred Inflows of Resources
Proportionate Share of Pension Expense
Net Amortization of Deferred Amounts from Changes in Proportion and
Differences Between Employer Pension Contributions and
Proportionate Share of Contributions
Total Employer Pension Expense
$ - $ 479,970,345 $ - $ - $ 479,970,345 $ 1,629,374,545 $ 1,416,854 $ 1,630,791,399 - 52,683 - - 52,683 178,845 46,476 225,321
- 24,395,406 - - 24,395,406 82,816,060 6,691,918 89,507,978 - 2,248,457 - - 2,248,457 7,632,926 265,551 7,898,477 - 1,056,805 - - 1,056,805 3,587,577 (2,593,345) 994,232 - 1,061,930 - - 1,061,930 3,604,976 (2,099,990) 1,504,986 - 548,068 - - 548,068 1,860,549 (89,162) 1,771,387 - 374,900 - - 374,900 1,272,689 347,685 1,620,374 - 81,928 - - 81,928 278,123 31,662 309,785 - 45,924 - - 45,924 155,899 18,936 174,835
- 3,347,586 - - 3,347,586 11,364,184 (1,088,087) 10,276,097 - 543,353 - - 543,353 1,844,543 1,624,365 3,468,908 - 962,807 - - 962,807 3,268,479 (2,004,611) 1,263,868 - 672,790 - - 672,790 2,283,946 65,978 2,349,924 - 699,476 - - 699,476 2,374,538 (36,482) 2,338,056 - 213,043 - - 213,043 723,227 (185,828) 537,399 - 214,719 - - 214,719 728,914 263,271 992,185 - 99,311 - - 99,311 337,135 448,930 786,065 - 28,262 - - 28,262 95,942 21,720 117,662
$ - $ 516,617,792 $ - $ - $ 516,617,792 $ 1,753,783,100 $ 3,145,841 $ 1,756,928,941
Michigan State Employees’ Retirement System Schedule Of Other Postemployment Benefit (OPEB) Amounts By Employer
As Of And For The Fiscal Year Ended September 30, 2018 Page 1 of 2
Employer-level results may not add to System-wide results due to rounding. The accompanying notes are an integral part of this schedule. 8 of 19
Deferred Outflows of Resources
Employer Name September 30, 2018 Net OPEB Liability
Differences Between Expected
and Actual Experience
Net Difference Between Projected
and Actual Investment
Earnings on OPEB Plan Investments
Changes of Assumptions
Changes in Proportion and
Differences Between Employer OPEB
Contributions and Proportionate Share
of Contributions
Total Deferred Outflows of Resources
GOVERNMENTAL ACTIVITIES State Of Michigan $ 7,367,725,308 $ - $ - $ 614,569,607 $ 1,973,057 $ 616,542,664 State Building Authority 697,628 - - 58,192 16,926 75,118
BUSINESS TYPE ACTIVITIES Information Technology Fund 379,692,179 - - 31,671,549 8,913,041 40,584,590 State Lottery Fund 34,926,285 - - 2,913,332 316,376 3,229,708 Liquor Purchase Revolving Fund 15,834,644 - - 1,320,827 - 1,320,827 Office Services Revolving Fund 16,103,112 - - 1,343,221 1,557 1,344,778 Correctional Industries Revolving Fund 8,081,361 - - 674,097 2,143 676,240 Motor Transport Fund 5,644,081 - - 470,794 399,582 870,376 Attorney Discipline System 1,166,337 - - 97,289 - 97,289 Risk Management Fund 748,387 - - 62,426 67,118 129,544
COMPONENT UNITS Michigan State Housing Development Authority 51,037,629 - - 4,257,240 14,086 4,271,326 Michigan Strategic Fund 8,282,006 - - 690,833 2,000,330 2,691,163 Michigan Economic Development Corporation 14,070,513 - - 1,173,674 3,653 1,177,327 Michigan Finance Authority 10,316,845 - - 860,567 92,164 952,731 Mackinac Bridge Authority 11,153,097 - - 930,322 25,173 955,495 Mackinac Island State Park Commission 3,343,752 - - 278,915 - 278,915Michigan Education Trust 3,135,598 - - 261,552 271,532 533,084Land Bank Fast Track Authority 1,618,402 - - 134,997 599,504 734,501State Bar Of Michigan 1,603,186 - - 133,728 26,016 159,744Total $ 7,935,180,353 $ - $ - $ 661,903,161 $ 14,722,258 $ 676,625,419
Michigan State Employees’ Retirement System Schedule Of Other Postemployment Benefit (OPEB) Amounts by Employer
As Of And For The Fiscal Year Ended September 30, 2018 Page 2 of 2
Employer-level results may not add to System-wide results due to rounding. The accompanying notes are an integral part of this schedule. 9 of 19
Deferred Inflows of Resources OPEB Expense
Differences Between Expected
and Actual Experience
Net Difference Between Projected and Actual
Investment Earnings on OPEB Plan Investments
Changes of Assumptions
Changes in Proportion and
Differences Between Employer OPEB Contributions
and Proportionate Share of Contributions
Total Deferred Inflows of Resources
Proportionate Share
of OPEB Expense
Net Amortization of Deferred Amounts from Changes in Proportion
and Differences Between Employer OPEB Contributions
and Proportionate Share of Contributions
Total Employer OPEB Expense
$ 846,269,283 $ 98,203,030 $ - $ 40,802,596 $ 985,274,909 $ 558,942,412 $ (9,746,999) $ 549,195,413 80,131 9,299 - 3,417 92,847 52,925 2,906 55,831
43,612,080 5,060,846 - 1,873,278 50,546,204 28,804,828 1,512,118 30,316,946 4,011,692 465,526 - 175,249 4,652,467 2,649,635 26,387 2,676,022 1,818,794 211,057 - 3,235,685 5,265,536 1,201,274 (721,540) 479,734 1,849,630 214,635 - 2,812,320 4,876,585 1,221,641 (627,849) 593,792
928,239 107,715 - 173,603 1,209,557 613,081 (39,313) 573,768 648,289 75,229 - 26,700 750,218 428,181 82,180 510,361 133,967 15,546 - 26,304 175,817 88,483 (6,019) 82,464
85,961 9,975 - 3,393 99,329 56,775 14,075 70,850
5,862,268 680,271 - 1,734,308 8,276,847 3,871,900 (390,165) 3,481,735 951,285 110,389 - 30,258 1,091,932 628,303 437,252 1,065,555
1,616,163 187,543 - 3,192,167 4,995,873 1,067,440 (711,631) 355,809 1,185,010 137,511 - 51,683 1,374,204 782,673 7,529 790,202 1,281,063 148,658 - 56,701 1,486,422 846,114 (8,629) 837,485
384,069 44,568 - 222,378 651,015 253,669 (49,969) 203,700 360,160 41,794 - 13,943 415,897 237,878 56,886 294,764 185,892 21,571 - 4,697 212,160 122,778 132,142 254,920 184,145 21,369 - 19,055 224,569 121,623 1,321 122,944
$ 911,448,121 $ 105,766,532 $ -- $ 54,457,735 $ 1,071,672,388 $ 601,991,614 $ (10,029,318) $ 591,962,296
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Michigan State Employees’ Retirement System Notes to the Schedule of Employer Allocations and
Schedules of Pension and OPEB Amounts by Employer
Note 1: Plan Description
Organization
The Michigan State Employees’ Retirement System (System) is a single-employer, state-wide, defined benefit public employee retirement plan governed by the State of Michigan (State) and created under Public Act 240 of 1943, as amended. Section 2 of this act established the board’s authority to promulgate or amend the provisions of the System. Executive Order 2015-13 signed by the Governor on October 27, 2015 established the State of Michigan Retirement Board. The executive order establishes the board’s authority to promulgate or amend the provision of the System.
The System is administered by the Office of Retirement Services (ORS) within the Michigan Department of Technology, Management & Budget. The Department Director appoints the Office Director, with whom the general oversight of the System resides. The State Treasurer serves as the investment officer and custodian for the System.
Plan Membership
The System’s pension and Other Postemployment Benefit (OPEB) plans were established by the State to provide retirement, survivor and disability benefits to state employees. Members are eligible to receive a monthly benefit when they meet certain age and service requirements. In addition, the System’s OPEB plan provides all retirees with the option of receiving health, dental, and vision coverages under the Michigan State Employees’ Retirement Act as well as eligible Special Duty Officers from the Military Retirement Provisions (MRP).
Effective March 31, 1997, Public Act 487 of 1996 closed the pension plan to new entrants. All new employees become members of the defined contribution plan. The Public Act allows returning employees and members who left State employment on or before March 31, 1997, to elect the defined benefit plan instead of the defined contribution plan.
Public Act 185 of 2010 established a pension supplement. Members who retired under the retirement incentive of the legislation agreed to forfeit accumulated leave balances, excluding banked leave time; in exchange they receive a pension supplement for 60 months to their retirement allowance payments equal to 1/60 of the amount forfeited from funds, beginning January 1, 2011.
Public Act 264 of 2011 closed the premium subsidy component of the OPEB plan to new employees hired on or after January 1, 2012. These employees become participants in the Personal Healthcare Fund (PHF). Former nonvested members of the premium subsidy component of the OPEB plan who are reemployed by the State on or after January 1, 2014, are not eligible for the premium subsidy benefit but will become participants in the PHF. Both groups of employees are eligible for a credit into a health reimbursement account at termination if they terminated with at least 10 years of service. The credit will be $2,000 for participants who are at least 60 years old or $1,000 for participants who are less than 60 years old at termination.
The System’s financial statements are available on the ORS website at michigan.gov/ORSstatedb.
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Note 2: Summary of Significant Accounting Policies
Governmental Accounting Standards Board (GASB) Statements 68 and 75
Employers participating in the System are required to report pension information in their financial statements for fiscal periods beginning on or after June 15, 2014, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions.
Employers participating in the System are required to report information about OPEB in their financial statements for fiscal periods beginning on or after June 15, 2017, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions.
The requirements of GASB 68 and 75 incorporate provisions intended to reflect the effects of transactions and events related to pensions and OPEB in the measurement of employer liabilities and recognition of expense and deferred outflows of resources and deferred inflows of resources related to pensions and OPEB.
The Schedule of Employer Allocations recognizes the employers’ proportionate share of net pension and OPEB liabilities determined in conformity with GASB 68 and 75. The Schedule of Pension Amounts by Employer recognizes the pension expense, including ending net pension liability, deferred inflows of resources and deferred outflows of resources related to the System’s pension plan. The Schedule of OPEB Amounts by Employer recognizes the OPEB expense, including ending net OPEB liability, deferred inflows of resources and deferred outflows of resources related to the System’s OPEB plan. These schedules were prepared by ORS with assistance from its third-party actuaries and provide employers with the required information for financial reporting related to the System’s pension and OPEB plans as of and for the fiscal year ended September 30, 2018 (the measurement period).
Basis of Accounting and Presentation
The System’s financial statements are prepared using the accrual basis of accounting, in accordance with accounting principles generally accepted in the United States (GAAP). Employer contributions are recognized as revenue when due and payable. Benefits and refunds are recognized when due and payable in accordance with the terms of the System.
The Schedule of Employer Allocations, Schedule of Pension Amounts by Employer, and Schedule of OPEB Amounts by Employer were prepared in conformity with GAAP. The preparation of these schedules required management to make estimates and assumptions that affect certain amounts and disclosures. Actual results could differ from those estimates.
The schedules present elements of the financial statements of the System and its participating employers and are not a complete financial presentation of the System or its participating employers.
Proportionate Share Allocation Methodology
The primary government and certain component units participate in the System, which is classified for financial reporting purposes as a single-employer. However, GASB 68 and 75 require that, in stand-alone financial statements, each government should account for and report its participation in the single-employer plan as if it was a cost-sharing employer. Therefore, these allocations are to identify the primary government activities, business-type activities, and component units’ proportionate shares of the collective net pension and OPEB liabilities.
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In determining the proportionate share allocation, GASB 68 and 75 require that the proportion for each employer be consistent with the determination of the System’s contributions. The System has determined that utilizing the statutorily required employer pension and OPEB contributions based on reportable compensation during the System’s fiscal year is an appropriate allocation methodology. Each employer’s proportionate share allocation is determined by dividing each employer’s statutorily required contributions to the system during the measurement period by the percent of pension and OPEB contributions required from all applicable employers during the measurement period.
In December 2003, a settlement was reached between the State Employees Retirement System, the State Bar of Michigan, the Attorney Grievance Commission, and the Attorney Discipline Board. Based on the settlement agreement, State Bar of Michigan and Attorney Discipline System pay retiree premiums for eligible former employees who qualify for the premium subsidy benefit. Because the agreement was determined before the System began prefunding OPEB benefits, the original funding process remains in place. The sum of the retiree premiums invoiced to these employers for the applicable fiscal year comprises their statutorily required contributions for the proportionate share calculation in this report.
The Schedule of Employer Allocations has been rounded and presents the first ten decimal places.
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Note 3: Net Pension and OPEB Liability
The System’s net pension liability is measured as the total pension liability, less the amount of the pension plan’s fiduciary net position. In actuarial terms, this is the accrued liability less the market value of assets.
Net Pension Liability As of September 30, 2017 Total Pension Liability $ 16,999,872,305 Fiduciary Net Position (11,807,059,132) Net Pension Liability* $ 5,192,813,173
Fiduciary Net Position as a Percentage of Total Pension Liability 69.45% Net Pension Liability as a Percentage of Covered Payroll 170.24%
Net Pension Liability As of September 30, 2018 Total Pension Liability $ 18,444,887,372 Fiduciary Net Position (12,398,001,517) Net Pension Liability* $ 6,046,885,855
Fiduciary Net Position as a Percentage of Total Pension Liability 67.22% Net Pension Liability as a Percentage of Covered Payroll 194.11%
* Employer-level results may not add to System-wide results due to rounding.
The System’s net OPEB liability is measured as the total OPEB liability, less the amount of the OPEB plan’s fiduciary net position. In actuarial terms, this is the accrued liability less the market value of assets.
Net OPEB Liability As of September 30, 2017 Total OPEB Liability $ 10,293,376,143 Fiduciary Net Position (2,047,228,760) Net OPEB Liability* $ 8,246,147,383
Fiduciary Net Position as a Percentage of Total OPEB Liability 19.89% Net OPEB Liability as a Percentage of Covered Payroll 270.34%
Net OPEB Liability As of September 30, 2018 Total OPEB Liability $ 10,498,001,476 Fiduciary Net Position (2,562,821,123) Net OPEB Liability* $ 7,935,180,353
Fiduciary Net Position as a Percentage of Total OPEB Liability 24.41% Net OPEB Liability as a Percentage of Covered Payroll 254.72%
* Employer-level results may not add to System-wide results due to rounding.
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Discount Rate
A discount rate of 7.00% was used to measure the total pension and OPEB liabilities. This discount rate was based on the expected rate of return on pension and OPEB plan investments of 7.00%. The projection of cash flows used to determine this discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the fiduciary net positions of both the pension and OPEB plans were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension and OPEB plan investments was applied to all periods of projected benefit payments to determine the total pension and OPEB liabilities.
Sensitivity of the Net Pension Liability to Changes in the Discount Rate
As required by GASB Statement No. 68, the following presents the System’s net pension liability, as well as what the System’s net pension liability would be if it were calculated using a discount rate that is one percent lower or one percent higher.
1% Decrease
6.0% Current Discount Rate
7.0% 1% Increase
8.0% Total Pension Liability $ 20,307,240,802 $ 18,444,887,372 $ 16,858,824,504 Fiduciary Net Position (12,398,001,517) (12,398,001,517) (12,398,001,517) Net Pension Liability $ 7,909,239,285 $ 6,046,885,855 $ 4,460,822,987
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate
As required by GASB Statement No. 75, the following presents the System’s net OPEB liability, as well as what the System’s net OPEB liability would be if it were calculated using a discount rate that is one percent lower or one percent higher.
1% Decrease
6.0% Current Discount Rate
7.0% 1% Increase
8.0% Total OPEB Liability $ 11,726,626,302 $ 10,498,001,476 $ 9,467,523,829 Fiduciary Net Position (2,562,821,123) (2,562,821,123) (2,562,821,123) Net OPEB Liability $ 9,163,805,179 $ 7,935,180,353 $ 6,904,702,706
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate
As required by GASB Statement No. 75, the following presents the System’s net OPEB liability calculated using assumed trend rates, as well as what the System’s net OPEB liability would be if it were calculated using a trend rate that is one percent lower or one percent higher.
1% Decrease Current Healthcare
Cost Trend Rate 1% Increase Total OPEB Liability $ 9,404,834,419 $ 10,498,001,476 $ 11,768,155,618 Fiduciary Net Position (2,562,821,123) (2,562,821,123) (2,562,821,123) Net OPEB Liability $ 6,842,013,296 $ 7,935,180,353 $ 9,205,334,495
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Timing of the Pension and OPEB Valuations
Actuarial valuations to determine the total pension liability and total OPEB liability are required to be performed every two years. The System’s pension and OPEB valuations are performed every year. If the actuarial valuations are not calculated as of the System’s fiscal year end, the total pension liability or total OPEB liability is required to be rolled forward from the actuarial valuation date to the System’s fiscal year end.
The total pension and OPEB liabilities as of September 30, 2018, are based on the results of an actuarial valuation date of September 30, 2017 and rolled forward using generally accepted actuarial procedures.
Actuarial Valuations and Assumptions
Actuarial valuations for the pension and OPEB plans involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment and mortality.
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the fall of 2017, the Department of Technology, Management, and Budget Director and the State of Michigan Retirement Board adopted a dedicated gains policy to lower the discount rate in years where investment returns exceed the current assumption based on a schedule determined by the plan actuary. Excess investment gains in the 2018 fiscal year were sufficient to reduce the discount rate for the System’s pension plan from 7.00% to 6.70%; and to reduce the System’s OPEB plan discount rate from 7.00% to 6.90% beginning with the September 30, 2018 actuarial valuations.
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Additional information as of the latest actuarial valuation follows:
Summary of Actuarial Assumptions
Valuation Date: September 30, 2017 Actuarial Cost Method: Entry-Age, Normal Wage Inflation Rate: 2.75% Projected Salary Increases: 2.75% – 11.75%, including wage inflation at 2.75% Investment Rate of Return: – Pension and OPEB Plan 7.00% Healthcare Cost Trend Rate: 8.25% year 1 graded to 3.0% year 10 Mortality: Retirees RP-2014 Male and Female Healthy Annuitant Mortality Table scaled by 93% for
males and 98% for females and adjusted for mortality improvements using projection scale MP-2017 from 2006.
Active RP-2014 Male and Female Employee Annuitant Mortality Table scaled by 100% for males and 100% for females and adjusted for mortality improvements using projection scale MP-2017 from 2006.
Notes: • Assumption changes as a result of an experience study for the periods 2012 through 2017 have
been adopted by the System for use in the determination of the total pension and OPEBliabilities beginning with the September 30, 2017 valuation.
• Recognition period for pension liabilities is the average of the expected remaining service livesof all employees in years is 1.0000.
• Recognition period for pension assets in years is 5.0000• Recognition period for OPEB liabilities is the average of the expected remaining service lives of
all employees in years is 5.4967.• Recognition period for OPEB assets in years is 5.0000• Full actuarial assumptions are available in the 2018 State Employees’ Retirement System
CAFR available on the ORS website at michigan.gov/ORSstatedb.
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Note 4: Pension and OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions and OPEB
Pension Plan
The following table provides details of the System’s pension expense for the fiscal year ended September 30, 2018.
Expense Total
Service Cost $ 71,911,818
Interest on the Total Pension Liability 1,226,594,090
Current-Period Benefit Changes -
Employee Contributions (shown as negative for addition here) (35,598,366)
Projected Earnings on Plan Investments (shown as negative for addition here) (860,176,498)
Pension Plan Administrative Expense 6,488,354
Other Changes in Plan Fiduciary Net Position (64,473)
Recognition of Outflow (Inflow) of Resources due to Liabilities 1,552,926,343
Recognition of Outflow (Inflow) of Resources due to Assets (208,298,168)
Total Pension Expense* $ 1,753,783,100
*Employer-level results may not add to System-wide results due to rounding.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in future years’ pension expense as follows:
Fiscal Year Ending
September 30
Net Deferred (Inflows) and Outflows of
Resources 2019 $ (57,370,005) 2020 (182,694,017) 2021 (193,887,256) 2022 (82,666,514) 2023 -
Thereafter - Total $ (516,617,792)
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OPEB Plan
The following table provides details of the System’s OPEB expense for the fiscal year ended September 30, 2018.
Expense Total
Service Cost $ 93,346,197
Interest on the Total OPEB Liability 760,408,329
Current-Period Benefit Changes -
Employee Contributions (shown as negative for addition here) -
Projected Earnings on Plan Investments (shown as negative for addition here) (164,286,384)
OPEB Plan Administrative Expense 459,401
Other Changes in Plan Fiduciary Net Position (171,748)
Recognition of Outflow (Inflow) of Resources due to Liabilities (56,858,847)
Recognition of Outflow (Inflow) of Resources due to Assets (30,905,334)
Total OPEB Expense* $ 601,991,614
*Employer-level results may not add to System-wide results due to rounding.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in future years’ OPEB expense as follows:
Fiscal Year Ending
September 30
Net Deferred (Inflows) and Outflows of
Resources
2019 $ (87,764,181) 2020 (87,764,181) 2021 (87,764,182) 2022 (69,736,605) 2023 (22,282,343)
Thereafter - Total $ (355,311,492)
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Note 5: Subsequent Events
Discount Rate – Dedicated Gains Policy
The Department of Technology, Management, and Budget Director and the State of Michigan Retirement Board adopted a dedicated gains policy to lower the discount rate in years where investment returns exceed the current assumption based on a schedule determined by the plan actuary. In 2018, excess investment gains were sufficient to reduce the discount rate for the SERS pension plan from 7.00% to 6.70%; and to reduce the System’s OPEB plan discount rate from 7.00% to 6.90% beginning with the September 30, 2018 actuarial valuations. This will impact the fiscal year 2019 collective schedules of pension and OPEB amounts, however the dollar value of this impact cannot be determined at this time.
